Hi JB,
Thanks for taking the time to write everything in such great detail. I will have to tell you that I am not qualified to give advice or guidance. I can only share my opinions.
Regarding "high could go higher" and "cut loss", these are things we hear people who trade the market using TA might say. They are not wrong but if we choose to learn the techniques of any school, we must learn them well.
I am not well versed in this school but I know that what the school teaches has worked for many people. Just have to follow the rules. For one thing, a stop loss is probably activated when prices fall 10% and not 50%. So, I guess you maybe didn't have enough practice and you didn't master the techniques. Perhaps, you did not have the discipline to follow the methods taught by this school.
As for China Taisun, it is easy to simply generalise S-Chips as untrustworthy and to avoid them at all cost. Indeed, that is the easiest approach to S-Chips. If we cannot trust what they show us in their books, then, how do we do any FA on them?
However, I am not saying that all S-Chips are bad and I have invested in some as well with good results. What I have done that is crucial in my S-Chip investments is that I limit their size. Combined, they are never bigger than 10% of my entire portfolio.
FA is important but it is also equally important not to put all our eggs in one basket. Things could go wrong even in the best companies. Even blue chip companies are not invincible. Think Chartered Semicon. I believe that if your exposure to China Taisun had been smaller, it might have been less traumatising for you.
You might actually have thought of the things I have shared here. Nothing mystical. Just a bit of common sense. :)
All of us are made differently. Some of us have the temperament to be traders and some to be investors. So, we must know ourselves.
As for FA, learn from an expert. Go to my blog's right sidebar and you will find a section labelled "Food for Thought". There are many good options but you might want to zoom in on "5 rules for successful stock investing" for starters. :)
Read JB's letter to me: here.
Related posts:
1. What should I do? A letter from a 64 year old retiree.
2. 5 rules for successful stock investing.
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8 comments:
Hi Ak,
Have been reading your blog post for quite some time. Decide to make a post on the wall for the first time because the story of JB reminds me the situation of some my friends before..
Other than looking at financial statements of company, It is also important to have a large margin of safety, to understand the business inside and out and also when to sell sometimes at a loss when fundamentals are not there anymore.
I would also recommend a book which i read last year for people into TA and stock trading.
"Trading in a NutShell by Stuart Mcphee"
The book is easy to understand. Other than basic info abt TA, the contents stress the importance of Captial preservation, position sizing and the discipline to cut your loss before things become worse.
Hi,
Just like to add my 2 cents worth on cut loss. Perhaps cut loss apply more to a trader or short term investor. If you are investing for the long run, the company must give you the confidence to buy when it get cheaper, and 50% lower, should be like "wow!! Great SIngapore Sale", granted it is not easy to be affected by the loss (even if it is paper loss), for example, if DBS is selling at $8 and the business fundemental are there, just that they are facing external headwinds, will you cut loss with pain, or say "whoa, chance of a decade!", if you are not sure if you will accumulate when price go further, or feel more pain than excitment when price goes down,maybe you do not have that much confidence in your research or that company after all.
I usually start with a very small position after researching extensively, but after I buy, I realised there is practically no end to the research, you can start researching on the major customers, suppliers, competitiors, business model, the industry they are in. Usually, after a while, the full picture of the risk you are taking will be clearer and clearer (but cannot never be more than90% sure), if after you are more aware of the risks, you decide you cannot stomach it, then you can sell out your existing small stake or set a reasonable cut loss limit, but if you are happy with the risk you are taking, you should be looking to accumulate further at the same price or lower price.
Of course, the above only will work when you have the discipline and courage to save and put aside money for regular investing, if a company is really sound, and you always accumulate at a price that provide margin of safety, you should be able to get a low enough av, price that allow you to make decent money when the tide turns.
Make sure nothing changes fundamentally though, such as loss of competitiveness. Constant monitoring is needed (Not daily monitoring of price,but some efforts must be made to track the industry news and definitely the quarter reports).
I am no guru,just a sillyinvestor who like to write online.
Hi limch,
Thanks for the sound advice and book recommendation. :)
Hi sillyinvestor,
That is very good advice that you have just offered. Thank you. :)
For me, a stop is a marker which I place based on how much remaining money I am ready to run with. The stop is almost religious. I exercise my stop when the maximum allowable loss on a position had been reached. A stop is also not about losses - once a position is in the money, the stop moves along to protect my profits.
A "cut loss" is for those who had been holding on to hopes that the prices will reverse. For me, it's something I will use in a long term investment/position.
To fudge between the 2 is as bad as using TA to enter a trade and then use FA to rationalize the losses and hope for a reversal.
Hi Patty,
I know what you mean and I have been guilty of being a TA trader turned FA investor before. ;p
Coincidentally, in my mind, I have been tossing around the idea of using a stop to protect my gains, if any.
Hi Everyone,
This is JB here. Thank you all for sharing.
I greatly appreciate the pointers you guys/gals have made.:)
Hi Jingle Bell,
We threw out a piece of stone and got back pieces of jade. :D
I am glad I published our emails because we got so many valuable comments. :)
Hi JB,
Just wanna let you know that you are not alone. Your story touch a chord because I too started in shares the same year you did. I made costly mistakes along the way, pick myself up and invested conservatively.
To date my XIRR is just 4%, laughable as compared to season investors but at least it gives me the confidence to carry on in my financial journey.
Cheers!
Derek
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